Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Australia's slow wage growth, weak sentiment bolster lower-for-longer rates view

Published 16/05/2018, 05:49
Updated 16/05/2018, 05:50
© Reuters. A worker talks on his phone as he pushes a trolley loaded with goods across a main road in a retail shopping area in central Sydney

© Reuters. A worker talks on his phone as he pushes a trolley loaded with goods across a main road in a retail shopping area in central Sydney

By Swati Pandey

SYDNEY (Reuters) - Australian workers endured another quarter of feeble wage growth last quarter while consumer sentiment eased again in May, disappointing results that risk sapping economy-wide spending and restraining already-tepid inflation.

The local dollar slipped 0.4 percent to the day's low at $0.7447 <AUD=D4>, as the wage report cemented views that the Reserve Bank of Australia (RBA) will hold rates at record lows for a prolonged period until it sees a revival in consumer prices.

Wednesday's figures from the Australian Bureau of Statistics showed annual wage growth at 2.1 percent in the first quarter, similar to the fourth quarter rate, and only just above the all-time trough of 1.9 percent.

Wage growth has now stayed stuck around 2 percent since early 2016 and is half the rate workers enjoyed during the decade-long mining boom that began in the early 2000s.

Policymakers have blamed the persistently high labour market spare capacity for discouraging firms from boosting pay rates, even as jobs have surged over the past year.

Australia's jobless rate has remained stubbornly stuck around 5.5 percent and levels of underemployment - those already working but wanting more hours - are near historical highs.

"We may not see a material improvement in wage growth until the unemployment rate dips below 5 percent and unfortunately policymakers don't expect that to happen in the next three years," said Callam Pickering, APAC Economist for global job site Indeed.

RBA's latest forecasts show the jobless rate easing to 5.25 percent by mid-2020, although core inflation is set to stay below the middle of its 2-3 percent target band even by then.

"Today's result won't change RBA thinking but it reinforces the challenges facing the Australian economy," Pickering said

The central bank last cut rates to a historical low of 1.5 percent in August 2016, notching up the longest period without a change in modern history. Financial markets are wagering the steady spell could last well into 2019.

On Tuesday, RBA Deputy Governor Guy Debelle said it may take a lower unemployment rate than currently expected to generate a sustained move higher in wage growth.

WAGE STRIFE

That outlook has dimmed the mood of Australians with a Melbourne Institute and Westpac Bank survey showing its index of consumer sentiment easing 0.6 percent in May as consumers remained cautious about their finances.

The deterioration came even as Australia's centre-right government handed out a voter-friendly budget this month with a massive tax package for households.

Policymakers have repeatedly emphasised an acceleration in wages would be necessary to revive inflation, calling for workers to demand higher pay hikes.

RBA Governor Philip Lowe recently told lawmakers that average wage annual increases need to be around 3.5 percent to achieve average inflation of 2.5 percent.

The last time wages grew as fast as 3.5 percent was in the third quarter of 2012.

In the private sector, the outcomes are even worse - annual wage growth is stuck near historic lows of 1.9 percent with not a single industry paying more than 2.8 percent. The strongest growth rates were in healthcare and education, with mining wages up just 1.4 percent.

The RBA itself is facing strife with unions at its note printing subsidiary who are calling for a 3.5 percent pay rise rather than 2 percent the central bank is offering.

"Even the Reserve Bank won't give workers a pay rise willingly," said Troy Gray, a secretary for the Electrical Trades Union, after months of negotiations over wage increases "hit a brick wall."

© Reuters. A worker talks on his phone as he pushes a trolley loaded with goods across a main road in a retail shopping area in central Sydney

The RBA declined comment on the pay talks.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.